Finance for trucks: a snapshot in the current economic climate

Over the past three months, there has been a slowdown in new and used truck acquisitions by our clients. This we believe is due to higher interest rates, the recession, and the upcoming election. We have found in previous election years that the capex market typically slows down. However, coupled with a slower economic environment and rising interest rates, some businesses are holding off on purchases.

The current climate aside, this doesn’t mean that there aren’t plenty of opportunities for finance for new or used trucks.

Here are some frequently asked questions about truck finance in the current economic climate:

• My dealer has offered me a low interest rate. Is there a hidden cost?
  
  There is a good chance that the rates being provided by dealers are subsidised rates. How subsidised rates work is that the machinery dealer or distributor pays their finance company partner the difference between the discounted rate the client sees, and the rate typically charged by the finance company. The low interest rate is often paired with a short repayment term. You need to be wary of the 36-month cash flow implications. Subsidised interest rates are often offered over a shortened term, or with upfront deposit requirements, to reduce the dollar amount the dealer needs to pay the finance company (it is cheaper to buy down an interest rate over a 36-month loan term vs a 60-month loan term). We frequently see clients get into cash flow difficulty where they have taken out loans with short repayment profiles. In today’s tight economic environment few businesses can afford to pay their equipment off that quickly. Remember, interest rates matter, but cash flow matters more, particularly in a soft economy!
  
  
• How long does it take to get truck finance approval?
  
  Provided good quality financial information is provided to us, we can usually have approval in around 72 hours. For transactions of less than $200K, faster approvals can be obtained. There can be a bit of a trade-off here – the major banks tend to take much longer to approve finance, and need more information, than many of the non-bank finance company funders however for larger fleet operators the main banks can provide some product advantages.
  
  
• What sort of trucks do lenders prefer?
  
  Any truck from an American, European, or Japanese supplier will be considered “tier one”.Chinese trucks are still building their credibility in the market, and lenders will be more cautious funding them. Lenders will consider the body build of each truck and may be more cautious when lending on unusual builds that don’t have a large resale market. It is important that regardless of the make of truck, your loan repayment profile considers the economic life of the truck in your operation. For example, a double shifted line haul truck should be repaid over a shorter loan term when compared to say a new Hiab crane truck that will have a much longer economic life.
  
  
• What is the appetite to fund new owner-drivers?
  
  Lender appetite is mixed, but there are options. The main banks are conservative with ODs but may be supportive if the OD has a strong “fall back” position, for example a homeowner with good levels of equity. A few non-bank funders are supportive of owner drivers, particularly when working with the larger freight forwarding companies. Deposits may be required for some new owner drivers.
  
  
• What sort of information do lenders want to see before approving?
  
  For transactions over about $150,000 lenders will want to assess:
  
  
  
  • Historic financial accounts for the borrower
  • Forecast financial accounts for the borrower based on the proposed debt and business performance after the assets being funded are purchased. This will only be necessary where the additional lending is not supported by the historic accounts, for example if a business is growing significantly or is a startup.
  • What security is available to them. Valuations may be required.
  • What the wider “statement of position” is like for the owners of the business. Lenders want to understand what assets are available to the owners to support the business, and what liabilities the owners need to service from business drawings.
  • The credit profile of the borrower and company owners – credit checks will be run and credit scores within those reports are increasingly important to lenders.
    
    
• Are lenders currently offering 100% funding?
  
  Yes. 100% funding is widely available for established businesses with a good credit rating.
  
  
• I am looking at purchasing an electric or eco-friendly truck. Can I access lower interest rates?
  
  Yes. Some of the main banks are offering discounts for lending on electric vehicles.
  
  
• Why is Finance New Zealand better positioned to help me than dealing directly with a single lender?
  
  As we have over 30 funding partners, we ensure that you are matched with a lender that is suitable for your specific business needs, rather than a "one size fits all" solution. Sometimes this includes spreading your lending across multiple lenders to meet your business goals.
  
  In addition to access to a wide range of funding partners, our team has hundreds of years' experience in financial services. This means you can be assured that you will get a structured finance solution that minimises the total cost of finance. This can involve structuring debt over the lifespan of each asset, accessing competitive interest rates, aligning repayments to cash flow, and combining revolving credit with fixed or floating term loans to improve cash flow flexibility.
  
  
  Can you arrange finance for any type of truck? Yes, we can provide a truck finance solution for all types of trucks and trailers:
  
  • Truck and trailer units
  • Fleets
  • Vans
  • Campervans
  • Crane trucks & hiabs
  • Fertiliser spreaders
  • Forklifts
  • Refrigeration and chiller trucks
    

No matter your truck finance requirement, our collective experience ensures that you receive expert advice and the right finance solution tailored to your unique business needs. If you are just starting out or an owner-operator, our team will make sure your finance solution incorporates any future growth and goals.

If you are established in business and need flexible and easy access to capital to grow your fleet of vehicles, require leasing options or would like to check if your current solution is structured to provide optimal efficiency, our team can help.